Management consultant and bestselling author Peter Drucker wrote, “The only thing we know about the future is that it is going to be different.” That is, indeed, true for service providers, as new technologies increasingly adopted this year are a catalyst for change in nearly all aspects of the services business. Here are four things that service providers need to think about in light of threats or opportunities in 2016.
The first thing to think about is the role that automation will play in your service delivery model. It’s clear at this point that between RPA, neural computing and cognitive computing, businesses can automate a significant portion of their service delivery network. And customers expect it. So whether your business focuses on IT apps, infrastructure or BPO / BPS, automation stands to be increasingly disruptive in 2016.
2. Talent model
The second thing to think about is how your talent model will change. As automation, cloud and other disruptive technologies continue to play, they will challenge providers’ existing talent models. We see the market moving to cross-functional teams, which will take over a larger share of work and will thus will stress the specialized talent factories that providers have built over the last 15 years.
3. Business model
Another big upcoming change to think about is how the increased emphasis on using persistent teams rather than a leveraged pyramid will lead to change in your business model. Clients are increasingly looking for continuity in a services team over several years, not over several months. As providers seek to accommodate this demand, it will both challenge the offshore labor models that rely on constant input of freshers and create implicit churn of talent as those people move through the pyramid.
The fourth operational aspect to think about in 2016 is location. I’ve blogged frequently about the impact of new technologies on labor arbitrage. Although I’m not predicting the end of labor arbitrage by any means, I expect more pressure on location decisions and clients desiring to move more workloads closer to their business. There will be pressure to not move workloads offshore and to move work currently offshore back on shore.
Shaping the future
None of these four aspects of change will individually remake the current services model. But I believe they will cause the model to evolve and definitely put stress on long-held beliefs and assumptions. It’s something to think about in 2016 when building for success in services.
Xerox, ADP and Teleperformance top the inaugural ranking of the world’s largest third-party BPS providers for 2015
DALLAS, October 27, 2015 — Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing, today announced the launch of “The Everest Group BPS Top 50™,” an annual ranking of the world’s largest third-party providers of business process services (BPS). Identifying the largest BPS service providers, their growth and coverage cutting across geography, domain and buyer size, the list is the first of its kind for the global industry, which is valued at more than US$150 billion.
“An industry that is this important to the global economy needs a reference point of leadership, and that’s the gap we are filling with the launch of The Everest Group BPS Top 50,” said Rajesh Ranjan, partner at Everest Group. “This ranking will help enterprises identify the largest providers and their functional coverage, and it will help BPS service providers compare themselves against others in the industry. Over the coming years, we also expect the list and associated analysis to help stakeholders understand the broad dynamics of growth and success in this industry.”
Everest Group estimates there are more than 200 service providers with more than US$50 million in revenues offering BPS services around the globe. What started as a cost optimization concept focusing on “non-core” and “back-office” business processes today permeates the entire business process value chain, addressing a wide variety of business objectives. Topping the 2015 list of BPS providers are these 10 leaders, which collectively represent 2014 revenues of US$39 billion:
I was introduced to the Philippines about two years back when I started working in the global services sector. And frankly, I was a bit startled by how little I knew about this giant of the contact center services market – I always thought India was the world’s largest contact center market. But its colonial heritage, accent neutrality, cultural affinity with the west, and BPS-conducive environment puts the Philippines at an altogether different level.
I began following the Philippines IT-BPS markets more regularly as I worked on this location for several client engagements. I observed how this country is a perfect example of the “playing on your strengths” approach. It is incredible how the government, iBPAP, and other partner associations have worked together to achieve the growth potential we highlighted in the Roadmap we developed in association with then BPAP and Outsource2Philippines back in 2009. Indeed, the market has doubled in size in less than six years. Today, the Philippines employs over a million FTEs, and is the second largest offshore services delivery location, next only to India.
While voice-based services have always been Philippines’ strength, it has experienced remarkable success in other areas, such as IT services, which grew at ~25 percent CAGR since 2010, and now accounts for ~10 percent share of country’s entire offshore market. While service providers have been key drivers of the growth in IT, Global In-house Centers (GICs) have pushed for growth in FAO and banking services. Several global banking companies, such as American Express, ANZ, Citibank, Deutsche Bank, HSBC, ING Group, JP Morgan Chase, and Wells Fargo, have established sizable centers in the country. Even though Bank of America has exited the country (it shut down its shop in 2014 as part of a global GIC restructuring), and JP Morgan Chase is scaling down owing to global cost cutting, overall outlook remains positive. The country has also made good use of its strong nursing talent—the largest pool of U.S.-licensed nurses outside of the U.S.—and is now the largest healthcare services provider to the U.S. The healthcare BPS sector has grown at over 40 percent YoY since 2012.
Another success area for the Philippines has been its ability to attract global companies. Over 100 have set up their GICs in the country, and close to one-fourth of them are on the Fortune 500. These GICs are expanding their Philippines strategy beyond cost arbitrage, and establishing regional hubs/HQs/CoEs. The U.S. remains the leading buyer market, with ~70 percent total demand. However, demand from Asian markets has been increasing steadily, with several Japanese and Australian companies establishing their captive centers in the metro Manila region.
With increasing emphasis on adoption of digital globally, government agencies (such as iBPAP and PSIA) are making proactive efforts to ensure that the Philippines stays ahead of the curve. It is already investing in building capabilities – from teaching the right curriculum at the universities to supporting companies’ development of required infrastructure to setting up training labs at colleges and universities – to deliver mobility, analytics and cloud-based services. We have seen some evidence of companies already delivering mobility (focused application development services for mobile) from the Philippines in the last year or so. Digital has been the buzzword in the majority of our interactions with our clients looking into the Philippines lately.
Having done well so far, I am intrigued to see how the Philippines will sustain its growth in the evolving IT-BPS ecosystem. It needs to adapt to rapidly changing consumer needs, e.g., the adoption of digital, development of multi-channel delivery systems, and a multi-skilled labor force. It also needs to ensure continuous growth in other service lines, such as banking BPS, FAO, HRO services, animation and gaming, and creative services, by leveraging its interpersonal, voice-based, and strong domain-specific skills to build scale.
It will be interesting to watch what lies ahead in the years to come. Can the Philippines continue shaping its own destiny in the global services market?
A widely quoted phrase these days is “software eats everything.” It refers to the great value that software delivers. I believe it also applies to the profound impact it’s making in the services world. Software is disintermediating the industrialized labor arbitrage model and also infrastructure services. Let’s look at the huge implications for the services industry.
How is software eating services? It’s happening in a number of important ways and areas.
First, software enables automation and RPA to replace much of what the current industrialized arbitrage model does. Much of this work is repetitive and screams for a more automated approach. BPO work, for instance, bridges the gap between the labor that interfaces between records and the system of records. As I’ve blogged before, software is about to eat BPO labor.
The DevOps revolution’s impact on infrastructure services is another example of software eating everything. A fully integrated DevOps platform allows defining code for infrastructure hardware at the same time as defining code for functionality. Increasingly in a software-defined infrastructure, companies can build an integrated DevOps platform that enables simultaneously configuring the entire supply chain from functionality all the way down to the number of cores it requires to run and test it.
Prior to the DevOps movement, all these steps were labor based, and much of this work migrated into the industrialized arbitrage model. They now become largely automated and software controlled.
Another example within infrastructure is the infrastructure itself. Five years ago, companies operated in a world where they were trying to move from 20 servers per FTE to 50. Most of the infrastructure service providers succeeded based upon their ability to make that shift.
Today, the services industry tries to get up to somewhere in the range of 200 to 500 FTEs per server. But the highly automated world in Silicon Valley has over 100,000 virtual servers per person. They’ve completely severed the link between people and servers. Again, a dramatic example of software eating everything.
Another dramatic example of software eating everything is the Software-as-a-Service (SaaS) and Business Process as a Service (BPaaS) offerings. These software-based services offerings completely automate and configure the software, hardware, and business process experience for customers. SaaS and BPaaS completely upend the classic functional model previously used to deliver these functions.
Software eating everything is a relentless focus on different ways to sever the traditional link of labor (FTEs) to service. The dislocation to labor-based businesses will be immense over the next few years as this journey to a software-defined world continues and existing business models struggle to adapt.
A software-defined marketplace will dramatically change the current services market. It will create opportunities for new industries to emerge and force tremendous tension on the incumbent service providers to survive by embracing the change and cannibalizing their existing work.
Photo credit: Flickr
Robotic Process Automation (RPA) is becoming a big deal in the services industry. For the last 10 years, the Indian IT industry attempted to affect pricing by breaking the link between FTEs and the services they provide. They tried outcome-based or transaction-based pricing. As I have blogged in the past, although this is interesting and has some utility; but it has both positive and negative consequences. And it’s an incomplete answer to severing the link; it prices the services differently, but it still maintains the link between the services and the people who do the work. But software accomplishes the goal with RPA. Here’s why it’s a big deal.
At Everest Group we’ve studied the impact of RPA’s disruption on BPO services. Automation and RPA break the link by replacing people with a piece of software sitting on a virtual server, which can be spun up at any time and then shut down when the work is done.
Great efficiencies come from RPA breaking the link between FTEs and services. Another significant benefit is that it enables delivering services in a consumption-based pricing model. Providers can match their costs against consumption. In the traditional FTE model, the people continue to be an inflexible cost over time, even after the provider switches them to work on another task or another client’s work. And reassigning them to other work draws out inherent friction and the problems of a learning curve.
In Silicon Valley, software firms used RPA to move from having 30 to 50 virtual servers per person five year ago to now having over 100,000 (and climbing) virtual servers per person. I believe the same potential lies in the services industry through leveraging RPA.
Photo credit: Flickr
BPO segments that require deeper IP/domain knowledge and/or technology-embedded solutions are less prone to commoditization
While the financial crisis had a major impact on the BPO market*, increased activity in newer segments is likely to accelerate growth over the next few years